Updated to include comment from Wells Fargo
NEW YORK ( TheStreet) - Wells Fargo (WFC) will pay $75 million to settle a lawsuit with former shareholders of Wachovia, which Wells acquired in 2008, according to Reuters, which cited court documents.
The plaintiffs in the class action case, which included New York City pension funds, claimed Wachovia misrepresented the risk in its mortgage portfolio from 2006 to 2008. Wells settled a related lawsuit with a group of bond investors for $590 million in August.
The investors claim Wachovia executives misrepresented underwriting criteria in its $120 billion "Pick-A-Payment" loan portfolio in an effort to "artificially support" the bank's stock price, Reuters reported.These adjustable-rate mortgages allowed borrowers to make a minimum payment that did not cover all of the interest and principal owed, causing a borrower's balance to increase, Reuters reported. Wachovia took over the loans as part of its acquisition California-based Golden West Financial Corp in 2006, and continued to make them even after the housing market began to sink. Losses grew at the start of 2008, weakening Wachovia and leading to its sale to Wells Fargo at the peak of the financial crisis. Wells does not make Pick-a-Payment loans, according to the report. "We are pleased to move forward with this settlement and put this matter behind us. The settlement amount was accounted for in prior quarters and will have no financial impact," a Wells Fargo spokeswoman wrote in an e-mail message to TheStreet. -- Written by Dan Freed in New York. Follow this writer on Twitter.
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